Best Practices


As a leader in the low-income housing tax credit industry, the National Association of State and Local Equity Funds (NASLEF) has developed the following “Best Practices” for member syndicators in performing asset management and compliance monitoring of portfolios invested in affordable housing financed partly by federal tax credits. Adherence to the “Best Practices” will lead to better quality tax credit projects, preserve and protect the interests of investors, and assure compliance with Section 42 of the Internal Revenue Code. This document sets forth guidelines and is not intended as a set of mandates. NASLEF recognizes that there may be circumstances where the guidelines need to be modified by individual syndicators to meet their needs.

NASLEF is a professional, nonprofit association formed in 1994 to promote the efficient management of state and local equity funds. Collectively through 2010, its 14 member funds operating in 32 states and Washington, D.C. have created or rehabilitated 111,000 units of affordable housing and have raised over $7.4 billion in equity capital for rental housing developments throughout the United States.

This document describes the multiple roles of syndicators as organizers and General Partners of investment funds (so-called upper tier partnerships) or direct investment vehicles which hold an equity stake in single-purpose entities (lower tier partnerships) which develop, own and operate affordable multi-family rental housing. The typical business model of NASLEF syndicators is to aggregate on an annual basis the combined performance, tax benefits and investment return of these lower tier partnerships into investment funds, which comprise the bulk of their managed portfolios. Tax benefits and investment returns are passed through annually by the syndicators to passive upper tier or direct investors.

The document is intended to summarize the key responsibilities or functions of asset management staff and their primary cross-departmental interactions within syndicator companies, but it is not meant to convey the detailed policies and procedures followed by asset management to achieve those goals. The guidelines also include standard deliverables and industry benchmarks for assessing investment performance. So the focus is more on what tax credit asset managers do, not how. Internal practices may be unique to every business and are far more detailed than can be summarized efficiently.

Syndicators act as:

a. limited partners with Developers who are the General Partners in lower tier entities,

b. fiduciaries on behalf of investors who subscribe to upper tier partnerships and are the ultimate recipients of income, losses and tax benefits produced by the lower tier Limited Partners,

c. asset managers for the upper tier investment funds or direct investors.

The key responsibilities broadly included under asset management of Low Income Housing Tax Credit investments are summarized below and discussed further within this document. In general, the practices described are to be followed by asset management staff in oversight of operating partnerships (also known as lower tier investments) although certain functions may be performed by other corporate departments, such as Acquisitions or Fund Accounting with asset managers in a supporting role.

  1. Underwriting & Due Diligence
  2. Construction & Lease-u
  3. Capital Contributions & Distributions
  4. Stabilized Operations: Lower Tier Reporting & Analysis
  5. Contractual Compliance
  6. Regulatory Compliance
  7. Information Management Technology
  8. Investor Reporting
  9. Document Retention
  10. Risk Ratings & Watch List
  11. Workouts
  12. Dispositions
  13. Upper Tier Risk Analysis
  14. Training